Cost of Health Insurance Exchanges Shoots Up

April 15, 2013

The functionality of the ObamaCare health mandate hinges on the ability of exchanges to fulfill the role envisioned for them by the authors of the law. As installation of the exchanges becomes more complicated, the cost of the exchanges has risen rapidly over the last year, says Politico.

The costs have risen substantially due to the U.S. Supreme Court's ruling regarding Medicaid expansion.

Medicaid spending will probably be less than initial forecasts because some states are declining to expand coverage.

The federal government promised to pay all of the costs of Medicaid expansion initially, but that level of reimbursement shrinks to 90 percent over several years, which shifts significant financial responsibilities to the states.

The new White House budget expects that from January 1, 2014, when the exchanges officially open, to 2021, the administration will spend about $606 billion subsidizing insurance on the exchanges. This massive commitment of federal resources is more than initially projected because of the Supreme Court's ruling that states have the right to choose whether to expand Medicaid.

In states that refuse to expand Medicaid, individuals that would have been covered by Medicaid will now be eligible for subsidies on the exchanges, which will drive up costs on the exchanges.

Individuals earning between 100 percent and 400 percent of the federal poverty level will qualify for the subsidies, which are expensive, especially for people closer to the poverty line.

The Congressional Budget Office estimates that the exchange subsidies will cost $3,000 more than Medicaid coverage would for the qualified person.

Supporters of the health care law say that optional Medicaid expansion grants flexibility to states and creates cost savings. But while the newest budget revised down the total expected amount of Medicaid spending in 2020 by $135 billion, the actual costs of the exchanges is largely unknown.

Costs will be difficult to predict until after the provisions are implemented because the government cannot predict the participation rate.

Another unpredictable cost is how much insurance companies will charge the federal government for its enhanced coverage plans.

Depending on the premiums insurers charge, costs could remain close to projections or skyrocket far beyond current estimates.